In Praise Of Pigou Taxes: Especially A Carbon Tax

Robert Frank has a piece in the New York Times looking at the idea of Pigou Taxes. The basic explanation is fine and they are indeed a very good idea. Obviously they are for I agree with them: more importantly, so do a large selection of economists, the supposed experts in these matters.

Greg Mankiw has (not quite entirely jokingly) started the Pigou Club for those who would sign on to the idea for example.

Just one point about the most important of these Pigou Taxes that are being proposed though. That's the carbon tax. It's the sole necessary solution to climate change. Which is rather nice really, having something simple and effective that we can do about that problem. And it's also nice that it's pretty much a zero cost thing to do as well. We've got to raise the tax money to fund government somehow. And even if climate change isn't real, doesn't exist, or isn't going to be large enough to be a problem, we've still got to raise the money to fund government somehow.

So why not raise it on carbon emissions, which might be a problem, rather than say incomes, or consumption, which we know very well reduces people's standard of living?

Please do note that the existence (or not) of climate change doesn't imply that government need be larger. Thus there is no argument that the tax burden should increase. Only that we change where we get those needed tax revenues from. And eminent environmental economists like William Nordhaus have been pointing out for a decade or more that it doesn't need to be a wrenching change of any sort. We can phase it in over the next three decades or so and it will still work. We're talking about, at this point in time, perhaps 20 cents extra federal gasoline tax on a gallon, rising into the future. Rising slowly enough that we'll all have time to adapt: we'll all certainly be driving new cars by the time that gas gets up to European price levels for example.

The second though is that the carbon tax might well be easier than Frank seems to think:

The case for Pigovian taxes isn’t easily reduced to bumper-sticker slogans. Still, the basic ideas are not complicated, and President Obama has the biggest megaphone on the planet. It should be easy for him to persuade rational voters to embrace policies that would make virtually everyone better off.

But he must also persuade House Republicans. Getting their votes will be the real test of his celebrated rhetorical skills.

House Republicans are a lot more scared of Grover Norquist than they are of President Obama. And Norquist has already stated that a carbon tax on emissions is the one obvious exception to his mantra of no new taxes and no tax rises.

Which leads me to an unusually optimistic possibility. A carbon tax really is the sole solution to climate change necessary. And it's actually possible that the US could be the one place to properly adopt one. Instead of this appalling mish mash of subsidies and regulation that the EU has encumbered itself with for example. Here's hoping at least.